Question: 1. (40 points) let A(0) = 100, A(T) = 112, S(0) = 38 dollars, and let S 50, with probability 30%, 36, with probability 70%.

1. (40 points) let A(0) = 100, A(T) = 112, S(0) = 38 dollars, and let S 50, with probability 30%, 36, with probability 70%. (a) (10 points) Calculate the price F for the forward contract. (b) (10 points) Assume F = 40. Create an arbitrage opportunity. (c) (10 points) Using the same bond and stock prices as in (a), compute the price of a call option C(0) with exercise time T and strike price X = 45. (d) (10 points) Using the same bond and stock prices as in (a), compute the price of a put option P(0) with exercise time T and strike price X = 40

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